Crypto Market Forecast: Week of December 6th 2021

It was a brutal week of trading in the digital asset markets with Bitcoin (BTC) and much of the altcoin market heavily in the red. Bitcoin is down ~10% this week and currently trades for just under US$50,000. On Friday, December 3rd, the daily high for the asset was around US$57,000. Overnight the price collapsed to a low of ~US$43,000. In less than a day, the price of BTC dropped by more than 25%.

The second and third largest assets in crypto, Ethereum (ETH) and Binance-coin (BNB) are down ~2% and ~9% respectively. ETH had a deep fall like the rest of the market on Saturday to touch US$3750 at one point. It has, however, shown significant strength since the dip and has recovered nearly all of its losses. It now trades for ~US$4,100.

The digital asset market started dropping after a stock market sell-off on Friday. Technology stocks were amongst the biggest losers as a disappointing November jobs report from the USA, and the new Omicron variant created fear in risk markets. On Friday, stocks such as Zoom, Tesla, and Docusign fell by ~4%, ~6%, and ~42% respectively, as traders rushed to safe havens like treasury bonds. Airplane and hotel stocks also traded very bearishly.

While investors rushed away from tech stocks, negative sentiment appears to have seeped into the crypto markets. While Bitcoin has characteristics such as scarcity, that make it appealing as an inflation hedge, it is still viewed as a risk asset by investors.

In recent weeks the correlation between the stock market and Bitcoin has been growing. In the last week, the 90-day Pearson correlation coefficient of Bitcoin and the S&P 500 reached 0.356, a high for the year. While BTC has been touted by advocates as an uncorrelated safe-haven asset, in the last few weeks, it has been dragged down by negative macro headwinds, and its reputation as a risk asset.

While Bitcoin’s correlation with the S&P 500 has been rising in the last two weeks, Ethereum’s has fallen. Ethereum is down 6.2% in the last fortnight while BTC is down ~18%. The price of ETH against BTC is approaching three and a half year highs.

This is partly due to ETH establishing a unique value proposition in comparison to BTC thanks to its connection to ancillary crypto growth sectors like Decentralized Finance (DeFi), Non-fungible tokens (NFTs), and the metaverse.

The NFT sector, for example, continues to heat up with more milestone auctions. On December 2nd, the Ross Ulbricht Genesis NFT Collection auction began at the Art Basel Miami conference via the Ethereum-based SuperRare platform. The auction will run until December 8. The highest bid for the collection currently sits at 666ETH, worth ~US$2.7 million. The collection is an assortment of ten artworks by Ross Ulbricht. Ulbricht created and operated the darknet marketplace Silk Road.

Trading set-ups for the week

Pro trader Josh Olszewicz explores trading options and signals for BTC and ETH – and lays out the trading setups he’s watching for the upcoming week. Start your week off right with Josh’s thoughts on trading strategies on a weekly basis.

Bitcoin, ALTs and Ethereum – Trading setup for the week of the 14th of December 2021

Crypto news for the week ahead

December 10th – US inflation data for November released

This Friday, November’s Consumer price data from the USA will be released. It will provide the Federal reserve with information to determine how quickly U.S. dollar inflation is rising and whether it should taper off its money injections into the economy. The Fed no longer assesses inflation risks as transitory, and a tighter monetary policy shift in the US could spell out further dips in risk markets like crypto.

December 10th – AlphaX launches on the Avalanche mainnet

AlphaX, a DeFi derivative platform originally built on Ethereum, is set to launch its Avalanche blockchain version this Friday. AlphaX is noted for its unique ‘Strike token’ that lets traders trade contracts based on Floor and ceiling price. Thanks to its speed, low costs and EVM capabilities, a number of Ethereum based projects have chosen to create Avalanche builds and expand their ecosystems.

Top 10 Crypto Summary

It has been a difficult week for most large-cap assets. Terra (LUNA) is a new entrant to the top 10. It stands out from the majority of the altcoin market because of its large gains in the last week. Following an approved governance proposal, Luna has burnt ~88 million Terra coins. Burns make tokens more scarce, by restricting supply, potentially boosting their value. Combined with the demand to lock up Terra, the asset is flipping deflationary.

Bitcoin Price Chart

A key factor in the weekend price drop was the flushing out of leveraged Bitcoin derivative positions. Glassnode reports that over $5.4B in Futures open interest closed on Saturday. This was over 24% of the market. Data from Coinglass indicates that most of this OI was long positions and this means that a long squeeze contributed to the severity of the price drop on Saturday.